The Treasury department is boasting that after this week's sale of AIG shares owned by the Treasury Department, "Treasury and the Federal Reserve have already realized a combined $15.1 billion positive return." And the government still has more shares to sell — 234.2 million of them, or 16% of the company, to be precise, with a market value for the government's shares of about $7.6 billion.
Supposing the government eventually sells the rest for about what it is now worth. It will have made a return of roughly $23 billion by investing about $183 billion over a period of a little more than four years. On an annualized basis, this is something less than a spectacular return, but it isn't terrible, either, depending on what your benchmark is.
One question I haven't seen explored much is at whose expense those profits were made. The government bought into its AIG investment without a shareholder vote and with the power of government to essentially name its own price. One can make a case that the $23 billion, at least the amount above the government's borrowing costs, should belong not to the federal government but rather to the AIG shareholders who had 80% of their company taken over by Henry Paulson and Timothy Geithner without even getting a chance to vote on the terms of the deal.
In other words, sorry to rain on Mr. Geithner's parade, but if he has something worth $100, and the government buys it from him for $80 without giving him a chance to say no to the deal, and the government later turns around and sells it for $100 and issues a press release announcing a $20 profit, is that really anything to cheer about? I think not.